Model Exit in a Vertically Differentiated Market:
Interfirm Competition vs. Intrafirm Cannibalization
in the Computer Hard Disk Drive Industry
Christopher S. Ruebeck, Lafayette College
Forthcoming in the Review of Industrial Organization
Abstract
What characteristics of a product's local market make its
withdrawal more likely? This study investigates the importance of
intrafirm "cannibalization" of a product's demand by products
manufactured by the same firm versus interfirm competition
from others' products. While both forces impact product
withdrawal, cannibalization has a more robust and significant
effect. Hedonic price regressions also reveal higher discounting
of older models' quality-adjusted prices, strengthening the
argument for caution when treating list prices as proxies for
transaction prices.